Friday, August 08, 2008

slowing real estate market in india

aug 8, 2008

i think prices will fall further, by as much as 50% from the peak, considering that the bubble has basically increased prices by factors of 3x and 4x.

at 50% off the peak, or even 30% off, it might be a real buying opportunity. demand for urban housing will continue to grow.


Non Carborundum said...
1. "prices will fall by 30-50%"
2. "the bubble has basically increased prices by factors of 3x and 4x" - since it is a "bubble", means the real prices should be 25-33 % of what they are now
3. however, going back to (1) this means prices will fall to about 1.5 to 2 times of what they should be (factor of at most 2x then?)
4. but then "demand for urban housing will continue to grow" and will push the prices up in the long run (beyond the levels that you predict they will reach shortly, or beyond their current levels?)

Please clarify....I'm slow...because I once talked to a bearded man from JNU.

nizhal yoddha said...

:-) let me see if i can explain. i should write a column on this.

in the bubble, prices suddenly went up by 3x-4x.

we are not going to go back to the prices prevailing before the bubble. for reasons i don't quite understand, prices never go back down all the way in india. may have to do with consistently high inflation or with the strange effects of black money.

there are a couple of factors to consider. interest rates have gone up, and there is a glut of units in the market at least. therefore speculators are bailing out, and the genuine buyer is less able to afford the mortgage, and is waiting for lower interest rates.

on the supply side, the cost of materials has gone up sharply, so the actual cost of building has also gone up. developers are loath to take much less than their usual profit margins of 100%.

these factors affect prices in opposite directions. i am betting that second-hand units will see bigger price drops, unless developers start getting desperate. i don't think the latter will happen, because they are building with customer money, not their own.

so there will be a correction.

even after the correction, prices will probably be significantly (say 100%) over what they were before the bubble, which is high by global standards.

still, given unmet demand for urban housing, and the expected continued movement of rural people into cities, there will be a long-run boom in real estate.

Sameer said...

While going through comments on a rediff news regarding the Georgian-Russian conflict, somebody compared the situation to India (Russia) and Pakistan (Georgia) over Kashmir (South Ossetia), only difference being that India didnt attack where as Russia attacked.
And well, the hand of US behind Georgia can be seen here too...
And the western media are reporting with bias.
Georgia is a wannabe NATO member and note that it has sent 2000 troops to Iraq to be in the good books of US. But US better not mess in Russia's 'near-abroad'.

Its raining heavily in AP, esp in Hyderabad.... after the long period of drought!

san said...

Here's an article urging Indian realtors to imitate US phenomena like, etc:

As you know, these real estate aggregator sites like Zillow have helped to open up the real estate market by making a wide spectrum of information transparently available to the ordinary websurfer. The information monopoly held by real estate agents has now been attacked, and the result has been increased competition in the marketplace.

Realty Rider said...

Yet another hike in the lending rates by the Reserve Bank of India (RBI) has caused an unprecedented hike in the home loan rates also. Buying a home has just got costlier. Private banks HDFC and ICICI have hike the rates by 75 basis points (100 basis points=1%). This is the third consecutive hike in interest rates this year. On an average, home loans have got costlier by 2% this year as compared to 2007.
The properties in India have been hit by many factors. The global recession had hit the real estate segment hard. The property prices all over the country have stagnated. This is the first such instance in the last five year when property prices have stabalised. Otherwise, the prices for real estate in all segments were rising without any halt. The demand for property had taken off like never before. Besides, property seekers and investors were keenly investing in property segment. Anybody who had little funds to spare found it conducive and profitable to invest in property. At that time, other investment instruments like mutual funds, securities and shares were being neglected by investors.
Home loan rates were affordable and easy payment options like Equated Monthly Installments (EMI) had attracted many home buyers to consider borrowing from banks and financial institutions. The scenario has changed now. Borrowing funds from banks has become a costly preposition. The costs for constructions material is rising. As a result, private property developers have hinted at hiking the prices of property projects. These market conditions are dissuading investors from investing in the property segment. Home seekers too are waiting for the market conditions to improve. As a result, the number of property transactions has dwindled. Property brokers, builders and home seekers are hoping for better times to come.For more view-

Pawan Sharma said...

India Real estate developers& Builders are now offering more solutions to market properties to NRI and International Investors.As an increasing number of businesses are outsourcing their IT functions to India, property in commercial hubs such as Mumbai, is in high demand but it comes at a cost for more info visit